From today, India's largest lender, State Bank of India (SBI) will be linking its loan and deposit interest rates to Reserve Bank of India's (RBI) repo rate.

The bank will be the first in India to adopt an external benchmark to set rates. At present, most banks finalise their loan interest rates on the basis of the Marginal Cost of Fund Base Lending Rate (MCLR ).

If you are an SBI account holder, here are the 5 things you need to know about the bank's new rules.

From May 1, SBI will offer an interest rate of 275 bps below repo rate on savings accounts with deposits above Rs 1 lakh. This means the effective rate will be 3.25 percent per annum.

One basis point is a hundredth of a percentage point.

The bank will offer an interest rate of 3.50 percent per annum to balances up to Rs 1 lakh. This comprises about 95 percent of total SBI savings account holders.

Also, SBI will link short-term loans such as cash credit accounts and overdrafts with limits above Rs 1 lakh to the repo rate for better transmission of RBI’s policy rates.

All cash credit accounts and overdrafts with limits above Rs 1 lakh will also be linked to the benchmark policy rate, plus a spread of 2.25 percent — amounting to 8.25 percent. "The risk premiums over and above this floor rate would be based on the risk profile of the borrowers, as is the current practice," states the SBI website.

SBI will charge a risk premium on these loans, over and above the floor rate of 8.25 percent, based on the risk profile of the borrower, similar to the current practice.

First Published:Apr 30, 2019 6:54 PM IST